Although Britain can claim to have led the first industrial revolution, its history since is marked by a number of lost opportunities to gain early advantage at times of major economic and technological transition.
The decision this week by the Government to axe the proposed loan for Sheffield Forgemasters risks Britain missing out on just such an opportunity which is being created by the worldwide trend towards greater use of civil nuclear power both as a response to climate change and for reasons of energy security.
The overall amount cut in this week’s spending announcement was relatively small in relation to overall expenditure and the new Government’s confirmation of Labour’s plans to finance expansion by Nissan and Ford prove there was no scorched earth or irresponsible grants policy by the outgoing administration.
Yet the Forgemasters decision exposes a complete lack of vision and ambition when it comes to making the most of the transition to a lower carbon economy.
To be clear, the Labour Government’s proposal was for an £80m loan to this company, not a grant. It would have been repaid over time and interest was being charged on it.
And the decision to approve this loan was never just about helping one company or creating a specific number of jobs in Sheffield – it represented a wider ambition for Britain to become stronger in the growing worldwide nuclear supply chain in the future.
The purpose of the loan – which also involved £40m in finance from Westinghouse, one of the world’s leading manufacturers of nuclear power stations – was to enable Forgemasters to buy a 15,000 tonne press. This would have given the company capability to make the ultra heavy forgings for civil nuclear and other sectors which currently can only be sourced from Japan or Korea because the capacity does not exist elsewhere in Europe.
For all those who want the response to climate change to be about new industries and new jobs and not just a discussion around targets and emissions, this was a project that mattered because it was about the real opportunities presented by the transition to low carbon.
It would have given the UK an important manufacturing capability in a growing field and would have brought a positive knock on boost to the whole nuclear supply chain in this country.
Conversely, the absence of the 15,000 tonne press will mean that more of the key components for new power stations, both here and elsewhere in Europe will have to be sourced from outside the UK. Good news for Japanese and Korean steelmakers but hardly good news for Britain’s lower carbon industrial future.
It has been suggested that Forgemasters should simply borrow the money privately. But this was a big investment for a company of that size and if the banks were willing to lend the company would not have needed to come to the Government in the first place. It is government’s role to consider whether there is a wider interest which makes projects like this worth backing, even when banks won’t do so. It is also important to state that this particular proposal was under discussion for a full two years and went through painstaking examination by officials in both the Department of Business and the Treasury before clearance by Ministers.
Whether the driving force behind this decision was the Treasury view of spending cuts at all costs, hostility to civil nuclear power among Liberal Democrat Ministers or a desperation to find an industrial project – any project – that could be axed is beside the point. The end result is that in axing this repayable loan to an important and potentially growing part of manufacturing the new Government has behaved like the banks they like to attack for favouring finance over industry.
The decision also exposes a wider issue about how the deficit should be cut. It is a huge assumption to believe that we can simply cut the state and assume the private sector will step into the gap, particularly if Ministers axe projects that involve private finance and are geared to industrial growth. The truth is that borrowing had to grow in recent years precisely because the private sector was not spending or investing. It would be wrong to oppose all cuts and the deficit does have to come down but deficit reduction without regard for industrial and employment opportunities in the future risks hurting more than it cures. Deficit reduction with a plan for such growth can make Britain stronger. The new Government, by turning their backs on the low carbon industrial ambition represented by the Sheffield Forgemasters proposal, appears to be opting for the former path.
The refusal to support Forgemasters is a terrible blow for the City and the country. It is short-sighted, vindictive and irresponsible. How can Nick Clegg face his constituents after supporting decisions like this is beyond understanding.
There is now an Anti-Clegg 4 Forgemaster petition doing the rounds in Sheffield with people queuing up to sign it. What odds do you think you would get for Clegg to lose his seat at the next election?
Re John Taylor’s post: I’m from Sheffield and worked in the steel industry in the 80s, so remember the damage of the Thatcher years well. I no longer live in Sheffield, but I’d like to sign the petition. Is that possible?
You can sign the petition online at http://www.sheffieldlabourparty.co.uk/
According to Steve Kidd of the World Nuclear Association China (China First Heavy Industries) and Russia (OMX Izhora) also have existing forging capacity for 1100 GWe reactors like the AP1000. Japan and Korea is just for the larger 1600 GWe French EPR – but France (AREVA) is also investing in this capacity at Le Creusot, and China is building this capacity. Also India (Larsen & Toubro) is planning.
It seems to me this is a much more crowded business than you suggest, for the very uncertain new nuclear build in the privatised western electricity market.
Why did you never explain what the terms of the loan would be when questioned about it in Parliament? Would the loan have been repaid if the business area did end up too crowded and Forgemaster’s did not use the new press for large nuclear components?
… I should add that the “£40m in finance from Westinghouse” for the project you report above, is reported by the World Nuclear Association not to be a loan but “advance payments”. Sounds like that would be recovered by Westinghouse from early production, ahead of the govt loan repayment which would form the higher-risk and longer-term finance. As far as I can see this being “advance payments” was not clearly stated in parliament. The case that this constitutes govt support for the nuclear industry seems strong.
… (further facts on the loan)
Angela Smith revealed in parliament that the Sheffield Forgemasters loan would have been at 3.5% interest [HC Deb, 23 June 2010, 4:37 pm, c360], well below commercial rates.
Vince Cable gave the reasons for not going ahead as “a very highly geared project promised extraordinary rates of return to the private promoter.” and “a lot of questions had to be asked about the affordability, value for money and risk of that project.” [HC Deb, 23 June 2010, 1:14 pm, c310]
It is unclear if the project yet had European Commission approval, and commercial due-diligence completed, that Pat McFadden said was needed. [HC Deb, 23 March 2010, c261W]
I’m sure a lot in the nuclear industry would like 3.5% govt loans to fund new nuclear – that would make it economic. Most good academic reports say private finance for nuclear power projects need finance discount rates in the range of 10% to 12% (e.g. the respected MIT study uses 11.5% average for equity+loan) – which explains why the fully privatised electricity industry has never built a new nuclear power plant. EDF is looking for a high CO2 floor price guarantee before authorising the capital for UK nuclear plants – will the ConLib govt give that?